With check usage declining steadily (down 12% last year) and cash transactions following suit, the explosive growth of debit and credit acceptance comes as no surprise. Even fast food and small-town, mom-and-pop establishments are sporting PIN pads at the POS these days. But the proliferation of plastic isn’t as easy as it looks to the consumer. In fact, retailers are faced with many decisions about their payment processing setup before, during, and after the decision to accept electronic payments. Transaction fees and customer wait time are considerations that typically top the list.
Per-transaction or per-item fees from merchant acquirers like First Data Merchant Services are added to a set of fees charged by credit card companies like Visa or MasterCard, referred to as assessment fees. Authorization ultimately comes from a card-issuing bank like Citigroup or Chase, which adds another expense (and by far the largest expense) in the transaction chain, referred to as interchange. These processing fees alone can add up to anywhere from 3 cents to 20 cents per transaction. Additionally, the cost of running the hard-wired phone lines necessary for each dial-up terminal can reach $50 per month, and the connection is not always on. If a 300+ store retail chain like Stride Rite has two lines in each store, maintaining them could total $30,000 each month just for the connection – $360,000 a year. But in a recent enterprise-wide systems upgrade, Stride Rite eliminated these phone line costs along with the incremental per-item fees it was shelling out to its acquirer for processing over dial-up lines.
The wait time problem was one that was compounded for children’s footwear retailer Stride Rite. The processing speed for a credit authorization depends on the connection established between the stores and the aforementioned parties in the transaction approval chain. It’s not uncommon for dial-up payment processing terminals to cause a 20- or 30-second lapse from the time the card is swiped to the time the customer signs the receipt or terminal screen. As recently as spring 2006, Stride Rite was processing electronic payments via dial-up modems at the POS stations in each of its 315 stores. Consequently, transaction approval times often took 30 seconds or more. “Thirty seconds may not seem like much time in the grand scheme of things,” says Joe Phebus, retail systems manager at Stride Rite, “but it’s an eternity to a mother with three tired toddlers on her hands, forced to stand in one place waiting at a register.” Considering that the aforementioned shopper is the retailer’s target (and typical) consumer, Stride Rite was painfully aware of the inconvenience that dial-up credit card transaction approval was causing its customers.
Increase Transaction Speed, Reduce Costs
A dial-up payment network did not provide enough scalability for Stride Rite’s store expansion (it added 35 stores in 2006 and plans to maintain that pace through this decade), customer service goals, or credit card compliance requirements. In concert with an ongoing JDA WinDSS POS rollout, Stride Rite is in the midst of implementing a WAN upgrade to support its CRM (customer relationship management) system and retail store intranet. This is the last phase of a multiyear retail enterprise systems replacement that includes the JDA Portfolio MMS merchandising system, Arthur Planning and Allocation, the Retail Ideas Data Warehouse, and the Portfolio CRM package. To date, more than 100 stores are running on a high-speed cable and DSL network enabled by iPass.
The WAN upgrade has also allowed the retailer to migrate to the ISD Payment Switch Framework, which was used to help cost-justify the WAN upgrade. The product includes ISD’s authorization suite, which, housed on Stride Rite’s central IBM AS/400 server, consolidates and routes all electronic transactions initiated from any of the retailer’s Wincor Nixdorf Beetle POS units to Stride Rite’s processing institutions. This portion of the switch framework, with much help from the high-speed WAN, shaved transaction times to 3 to 5 seconds, even during peak traffic times. Other efficiencies were gained as a result of the comprehensive nature of the project. For instance, prior to the upgrade, stand-alone payment terminals required associates to take an extra step processing card transactions, keying the transaction amount into the POS. The increasing number of card-based payments accepted at Stride Rite (the retailer is adopting PIN debit and gift cards, in addition to credit) created significant potential for reconciliation challenges.
In conjunction with the POS hardware upgrade, Stride Rite chose POS-integrated payment terminals. “Integrated payment terminals eliminate a potential problem – mistakes that can happen due to fast-fingered POS associates,” says Phebus.
Consumer Credit Data: Security Fears Alleviated
Credit card data security compliance is on the top of every retailer’s mind. When high-profile credit card data breaches occur, consumers attach the retailer’s brand to the security breach, regardless of who’s really at fault. In effect, retailers are constantly being challenged to provide more information about the card transaction and the identity of the cardholder. Individual credit companies’ requirements such as Visa’s CISP (Cardholder Information Security Program) – not to mention overarching PCI (Payment Card Industry) standards – are constantly being updated and are difficult to manage. Most of the updates to compliance standards have to do with fraud protection. Retailers who meet these standards are able to minimize risk of security breaches, thereby avoiding the associated penalties and potential for reputation damage. The ISD Payment Switch Framework relieves some of this pressure by addressing these standards in the software and securing each transaction and all transaction-related data. “ISD software was one of the first to be PABP (Payment Application Best Practices)-certified, which meets the recently updated PCI standards,” says John Filby, CEO at ISD Corporation.
Stored Value Cards For Gifting, Store Credit
In addition to reduced fees and improved transaction speed and security, Stride Rite will leverage its ISD investment by using the solution to process gift cards and merchandise credits beginning in early 2007. The switch will allow the retailer to manage its gift-card system, further eliminating some of the expense of an outsourced solution. Stride Rite will simply route these transactions for approval through the ISD switch to its gift-card provider’s database, using the same server that routes other card payments to outside authorizers. Initially, Stride Rite plans to utilize ISD’s stored value functionality for merchandise credits only. The ISD stored value system provides the functionality to bring the gift-card program in-house at some point in the future. “Given the tremendous effort required to implement the new POS system and other capabilities, we were not ready to take on administration of an in-house gift-card program as well. However, the ISD system positions us to do so when we have the necessary in-house support structure in place.”
Stride Rite also benefits from ISD’s Settlement Suite, a component of the Payment Switch Framework that allows the retailer to route transaction data to its bank for settlement. The consolidated settlement data is automatically reconciled with the POS transaction logs before transmission to the bank, thereby reducing reconciliation and account balancing problems. Communication links between third party settlement processors are sometimes unstable, especially when run on a dial-up modem. This can cause transactions to process late, sometimes the following day. While sales audits often catch these settlement issues, a problem might require the transaction in question to be rerung. Stride Rite’s WAN will eliminate much of the risk of this eventuality. In the event a connection is broken, ISD updates files with the data already captured at the POS and notifies the merchant acquirer once the connection is regained.
Switch Enables Central Inventory Lookup
Stride Rite is also able to leverage the ISD switch to provide lookup of inventory availability among stores. “This is functionality that the store managers are raving about,” says Phebus. “Instead of having to call around to a number of stores to locate an out-of-stock size for a customer, our associates are able to locate it in a nearby store or at the warehouse. From there, it can either be picked up or shipped directly to the customer,” he says. “In the past, we lost sales because moms were unwilling to wait while we called around looking for an out-of-stock shoe. While our goal is to have the broadest assortment of sizes in our stores to meet our customer needs, it isn’t always possible, given the small footprint of many of our stores. The inventory locator brings our wide range of sizes and widths to all stores, regardless of store size and volume.”
Taking control of your company’s payment processing infrastructure can reduce headaches at stores and in the back office, as well as decrease the overall cost of payment acceptance, which can add up to hundreds of thousands of dollars per year. Phebus says the collaborative store systems upgrade, including solutions from Wincor Nixdorf, JDA, iPass, ISD Corporation, and several other partners, was not easy. “This project has required a lot of juggling and coordinating of schedules,” he says. “We’ve been diligent about maintaining the same multivendor project team and making sure we’re all playing off the same sheet of music.” So far, the retailer’s IT team has taken Stride Rite’s in-house payment processing system in stride. “We’ve been delighted with ISD’s implementation team. They did an excellent job coordinating with JDA and our project team on the integration, testing, and certification of the system with our credit card and check providers,” says Phebus.